IN THE SOUTHWARK CROWN COURT No. 20107157

BETWEEN:

REGINA

-v-

INNOSPEC LIMITED

____________________________________________________

OPENING

____________________________________________________

1. The appointment of agents to assist an exporter in obtaining

overseas contracts is commonplace and legitimate, payments to

agents carry a corruption risk.

2. Regardless of the motive for employment of its agents in this case,

by the time of the events within the indictment period [February

2002 – 2006], Innospec’s agents in Indonesia were corrupt and

Innospec knew that its agents would make corrupt payments on its

behalf.

3. In Indonesia, where corruption has been identified as a result of the

internal investigations conducted on behalf of the Company, it is

clear that in paying these agents Innospec intended that these

agents would pay bribes to public officials.

4. Innospec used its agents to pay bribes to achieve bulk orders,

facilitate payments to key individuals who could influence sales

2

and to bribe at a higher, regulatory and Governmental level to help

achieve its short and long term marketing objectives. Undoubtedly

their actions prolonged the use of leaded fuel in Indonesia.

5. One of the executives [B] was happy to relate in an email to

Executive D on 22 November 2006 entitled “Indonesian TEL sales

post 1999”:1

“As you are aware, Indonesia was planning to go lead free in 2000 under the

now defunct “Blue Sky” programme, this obviously did not happen for a

number of reasons and since 1st January 2000 until the present, we have supplied

28,390t of TEL to Pertamina generating $277 million in revenue.”

STATEMENT OF OFFENCE

Conspiracy to corrupt, contrary to section 1 of the Criminal

Law Act 1977

PARTICULARS OF OFFENCE

Innospec Limited, between the 14th

day of February 2002 and

the 31st day of December 2006, conspired with certain of its

directors, executives, employees and agents to give or agree to

give corrupt payments [contrary to section 1 of the Prevention

of Corruption Act 1906] to public officials and other agents of

the Government of Indonesia as inducements to secure, or as

rewards for having secured, contracts from the Government of

Indonesia for the supply of TEL to the said Government of

Indonesia by Innospec Limited.

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DOCMAN 000169000137

3

6. The indictment involves a conspiracy post dating the coming into

force of sections 108 and 109 of the Anti-terrorism, Crime, and

Security Act 2001 (“the 2001 Act”) on 14 February 2002.

7. The indictment fully reflects the defendant Company's criminality

in Indonesia, however, during the course of the internal

investigation, indicators have emerged to the effect that corruption

may have been practised in other jurisdictions. The “global

settlement”, which relates to similar conduct prosecuted either as a

sanctions offence or by the U.S. authorities as a Foreign Corrupt

Practices Act 1977 offence or other offences, illustrates this

contention and is explained below.

8. For the purposes of illustrating the extent of the corruption, the

Company accepts and admits that in Indonesia corrupt payments

were made by its agents to public officials.

9. Innospec Limited (“Innospec” or “the Company”) is located in

Innospec Manufacturing Park, Oil Sites Road, Ellesmere Port,

Cheshire.

10. Both production and company administration are located at this

site.

11. Innospec is a subsidiary of Innospec Inc., a NASDAQ listed, non-

trading holding company, based in Delaware, U.S.

12. Innospec Inc. is the ultimate parent of a Swiss company called

Alcor Chemie Vertriebs GmbH (“Alcor”).

13. Innospec is believed to be the last manufacturer of an anti knock

fuel additive called Tetraethyl Lead (“TEL”).

4

14. TEL raises the octane level of the gasoline used in cars without

catalytic converters and in piston engine light aircraft. There is no

alternative product for use in piston engine light aircraft.

15. Due to health and environmental concerns, steps to phase out the

use of TEL in motor gasoline began in the 1970s with the

enactment of the Clean Air Act in the United States. Europe

followed suit in the 1990s and the use of TEL in motor gasoline

had mostly ceased in the United States and Europe by 2000. TEL

in motor gasoline is now used in a few countries in the Middle East

and North Africa where refining capacity for unleaded gasoline is

not as fully developed. From approximately 2000 the four

principal customers for TEL were Iran; South Africa; Venezuela

and Indonesia.

16. The manufacture and sale of TEL is therefore sometimes referred

to as a “sunset industry” because other than for piston engine light

aircraft, it has a very limited future. TEL has been a very

profitable product for Innospec. TEL was once the major source of

income for Innospec but by 2008 its part in the overall profile of

Innospec’s business was much reduced,

17. Innospec also manufactures a range of non-lead based fuel

additives.

18. As part of its commitment to sustainable environmental policies as

well as legitimate health concerns, Indonesia proposed phasing out

the use of TEL and leaded fuel from 1999 onwards. It did not

complete this process until 2006.

19. Despite worldwide environmental and health pressure to change to

unleaded fuel, Innospec accepts that bribes were offered to

government or state enterprise public officials in return for their

favouring TEL.

5

20. The principal activities of Innospec Inc. and its subsidiaries are to

manufacture and distribute fuel additives and other specialty

chemicals to both industrial and consumer markets worldwide.

The business is divided into three business segments: Fuel

Specialities; Active Chemicals; and Octane Additives. Octane

Additives is the divisional name for the sale of TEL for use in

motor gasoline.

21. The Fuel Specialties business provides additives for a range of

fuels and lubricants to improve fuel efficiency and lubricity, boost

engine performance and reduce harmful emissions. Innospec Inc.

is the largest dedicated fuel treatment company in the world. The

Fuel Specialties business is divided into three geographic regions -

the Americas; Europe, Middle East and Africa; and Asia Pacific.

22. The Active Chemicals business provides chemicals used in a wide

range of individual processes and everyday products, including

personal care. The Active Chemicals business is also divided into

three geographic regions in the same way as the Fuel Specialties

business.

23. The Octane Additives business is believed to be the world’s only

remaining manufacturer of TEL. Innospec has, for over 60 years,

been producing TEL for motor and aviation gasoline.

24. The TEL manufacturing operations are based in Ellesmere Port in

the United Kingdom. Although this segment of Innospec Inc.’s

business was once the primary business segment, since the phase-

out of leaded gasoline began globally, it has been representing an

ever-decreasing proportion of Innospec Inc’s business.

Investigation

25. In October 2007, the Serious Fraud Office, received evidence of

potential violations of U.K. law.

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26. In early February 2008, the independent directors of the Board of

Innospec Inc. were sufficiently concerned by the seriousness of the

issues that they formed a “Special Committee of the Board”

(“Special Committee”) to investigate any potential violations of

anti-corruption legislation and take the appropriate action. The

internal investigation has been directed by the Special Committee

and in this respect, the Special Committee instructed K&E as legal

advisors to conduct the internal investigation.

27. Procedures were established by the Special Committee to ensure

the integrity of the internal investigation. These procedures

included seeking to isolate those few individuals whose conduct

could be subject to investigation, from participation in, and gaining

knowledge of the internal investigation. Ultimately, the

employment of the individuals whose conduct was likely to be

subject to investigation was terminated by the Company.

28. Together with ensuring that the internal investigation of the facts

was completed, the Special Committee engaged KPMG to work

with Innospec to develop and implement a new compliance

programme as described in the Company’s agreed Mitigation

Document (“Annex 8” to the Plea Agreement).

29. The corruption case was officially accepted for investigation by the

SFO on 23 May 2008.

30. Innospec’s internal investigation has been wide-ranging and has

involved global document collection, the review of a significant

number of those and other documents and relevant interviews. It

follows that it is not possible in such an internal investigation to

enquire into foreign bank accounts, and the activities of foreign

agents, unless they consent to be interviewed.

31. It is appropriate at this point to acknowledge the high level of co-

operation which Innospec has afforded the SFO:

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(i) enabling the investigation into the affairs of Innospec to be

expedited; and

(ii) at a considerable saving to public finances.

32. It should also be noted at this stage that Innospec’s internal

investigation and cooperation with the SFO, DOJ, and SEC

globally has cost the Company in excess of US$32 million in costs,

approximately one third of which sum can be attributale to the UK

investigation.

Concurrent Jurisdiction

33. It is important to note that this case has been investigated jointly by

the SFO with the DOJ. It is what is called a concurrent jurisdiction

case. The DOJ has jurisdiction over the U.S. parent company,

Innospec Inc. The SEC also has regulatory supervision over the

parent company. Consequently, the apparent criminality has been

divided up between two prosecuting authorities in a manner which

both the DOJ and the SFO believe meets their respective interests.

Any agreement will, by its very nature, therefore involve a degree

of give and take by both prosecutors.

34. By reason of the global nature of the investigations conducted,

simultaneously and jointly, by the U.S. and the U.K. prosecuting

authorities, the SFO has limited its investigations into offences into

Iraq up until the cut off date of 2004 for OFF investigations.

However, Innospec is being prosecuted in England only for

corruption in relation to contracts awarded to it in Indonesia In

light of the global settlement reached with the U.S. authorities, the

Director of the SFO has decided to conclude his OFF investigation

by the use of civil recovery powers.

Co-operation

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35. Any criminal investigation into a company has a damaging effect

on its business affairs – typically the longer the investigation, the

more damaging the effect.

36. Mindful of both the SFO's domestic and international obligations,

the SFO wishes to conduct its duties in a way that does not

unnecessarily damage the Company's ability to trade. That

objective can only be fully discharged, as in this case, where the

Company fully co-operates with the investigating and prosecuting

authority.

37. As already stated, in the current case, the high level of co-

operation afforded by Innospec, through K&E, to the SFO has

meant that the SFO has been able to conclude this investigation

and prosecution expeditiously, and at considerable saving to public

finances.

Totality

38. In the light of the pleas offered both in this jurisdiction and in the

United States and the likely sanctions imposed there and expected

in this jurisdiction, given the Company’s inability to satisfy and

pay all the competing prosecutorial and regulatory interests, there

would be little or no difference to the financial penalty available to

be imposed by an English Court by pursuing further and broader

investigation of the Company.

Remediation

39. The Company is substantially no longer the Company that

committed these crimes.

40. A further consideration, as is explained in more detail in the

Director’s Appendix 1, is that the SFO have sought to follow the

model for corporate regulation adopted by the DOJ in the U.S.

under the FCPA.

9

41. That model recognises that corporate remediation is an important

factor in considering the propriety and proportionality of lengthy

investigations into companies that are willing to come forward,

engage co-operatively with the Prosecuting authorities and admit

their guilt.

42. Further, it is acknowledged that the Company has developed an

enhanced compliance programme since June 2008. This

programme has been implemented with the assistance of KPMG.

The Company has also appointed a Compliance Officer, on

secondment from the firm Mayer Brown LLP, and has recently

appointed a new General & Compliance Counsel.

43. Accordingly, because the Company has engaged and is continuing

to engage in a programme of remediation and enhanced

compliance and can only face a financial penalty, it is felt that

further investigation of offending corporate behaviour would not

be an appropriate use of resources nor be in the public interest.

The Court is able to reflect the criminality within its sentencing

powers, including the use of the confiscation regime.

44. In this context, it is to be noted that the current policy of the SFO,

further referred to below and at Appendix I, is that Boards of

companies should be encouraged to approach the SFO and make a

full and prompt disclosure of fraud or corruption they have

discovered together with proposals about any changes and

monitoring needed in the future to reassure the public that the

behaviour of those companies will meet the highest ethical

standards in the future. If companies do this then the SFO is

prepared to discuss with them the appropriate guilty pleas or other

resolution in the public interest.

SUMMARY OF FACTS

Innospec’s Indonesian Agents

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45. In order to conduct its business abroad, Innospec appointed agents

to act on its behalf in the various countries where it had or was

seeking to win contracts to supply TEL.

46. It is not the SFO’s case that agents are always a vehicle for

corruption or that where exporters such as Innospec appoint agents,

it is always for a corrupt purpose. Agents can and do perform

lawful services in a foreign country and Innospec’s agents did

perform lawful services.

47. The SFO has been provided with a schedule of commission

payments to its agents in Indonesia, prepared by KPMG (the

“KPMG schedule”) (“Appendix 2”). KPMG were instructed by

the Special Committee. KPMG have been able to reconcile the vast

majority of contracts for the supply of TEL to the payment of

commissions to Innospec’s Indonesian agents from 1999, where

readily available and reasonably comprehensive payment

documentation exists.

48. Although it is not wholly clear when Innospec began to obtain

contracts in Indonesia, it is clear that there has been substantial

business conducted over time and certainly from the 1970s.

Recoverable and verifiable financial records are in existence from

1999.

49. Innospec entered into an agency agreement with the company PT

Soegih Interjaya (“PTSI”) on 19 March 1982.2 PTSI was the

principal agent of Innospec in Indonesia. PTSI was a recipient of

commissions from Innospec for sales of TEL until the end of 2006.

2 DOCMAN 000169000002-3

11

50. The principal of PTSI was Willy Sebastian (“Sebastian”). He was

assisted by Mohamed Syakir (“Syakir”). PTSI were engaged by

Innospec in order to conduct business in Indonesia.

51. Sebastian and Syakir worked as local agents and also attended

meetings at Octel’s regional office in Singapore. It appears that

the Singapore office handled money transfers and general

administrative issues in the Asia Pacific region. There were a

number of Innospec executives who were responsible for

managing the TEL business in Indonesia. These executives have

been anonymised throughout this document.

52. From 1 January 1999 to 31 December 2006 Innospec’s agents

in Indonesia were paid US$17,487,926.76.

53. Whatever lawful commercial services were performed by

Innospec’s agents in Indonesia, Innospec also knew its agents

bribed on their behalf using money made available from these

commission payments as well as other “ad hoc payments”.

Corrupt Mechanisms Employed By Innospec in Indonesia

54. Innospec knew and sanctioned these corrupt payments through a

variety of mechanisms which grew up as needs demanded. The

picture over time was of general sweetening of persons of

influence both at the Pertamina level (the Indonesian state-owned

petroleum refinery) and later more targeted at the regulatory and

political level. Innospec imposed a cap on commissions, including

bribes, at 10% of contract values. Nevertheless Innospec were

willing and did pay additional bribes where needs demanded.

55. General commission paid resulting in the funs being applied for

bribes was one route to obtaining the contracts; the other being the

ad hoc use of funds under different guises. We will deal with both

routes of corruption shortly.

12

General Commission

56. PTSI were typically paid general commission fees by the Company

which were transferred to the agent’s foreign bank accounts in

Indonesia and Singapore from Company accounts maintained in

the U.K.

57. From these sums, bribes were then paid to officials at Pertamina

and to other public officials who were in a position to favour

Innospec by buying or agreeing to buy repeated orders of TEL.

58. Commission fees paid to local agents were authorised by senior

management, who have since departed the Company. These varied

from contract to contract. Typically, in Indonesia, agents were

paid between 1 and 5% by Innospec. Commission rose to 5% as a

rule by April 1999. These commissions are referred to hereafter as

“general commission”. The position changed again in 2005 where

an agreement was made that general commissions would rise to

10%.

59. Innospec knew that its agents had corrupt arrangements with

public officials and that they paid bribes out of their general

commission.

60. General commission was paid by percentage of orders obtained for

Innospec. The commission was always calculated as a percentage

of the revenue generated by the sale. Payments to agents would be

factored into contract prices. If there were no orders, the agent

would earn no commission. Consequently there was an incentive

for the agent to actively, and where required corruptly, promote

TEL.

61. During the indictment period, from 14 February 2002 to 31

December 2006, the sales of TEL to Indonesia was

US$170,176,007.50. General commissions paid in relation to

those sales were US$11,788,824.72. As stated above, an

13

unknown proportion of the general commission was used for

bribery.

62. Discussions concerning agents were treated by Innospec as

sensitive, principally because they included discussions relating to

illegal activities. There are references throughout the available

Company documents of an intention by its employees not to

commit all discussions concerning agents’ activities to writing and

a practice of discussing certain matters on the telephone or in face-

to-face meetings.3 Where discussions were reduced to writing,

code and euphemisms for bribery were used.

Ad Hoc Funds for Bribery

63. Innospec created other separate funds both before and during the

indictment period, referred to here as “ad hoc funds”. Some of

these funds appear to meet permanent or semi permanent

requirements for specific people at specific times; others were

generated as a reaction to particular circumstances arising in the

course of business. These ad hoc funds reflected arrangements with

particularly influential individuals at Pertamina or increasingly as

circumstances demanded, at a political level in MIGAS and within

various Ministries, over time.

64. Although most of the general commission payments have been

identified and scheduled by KPMG, other arrangements and “ad

3

DOCMAN 000169000004

DOCMAN 000169000005

DOCMAN 000169000006

DOCMAN 000169000010

DOCMAN 000169000015

DOCMAN 000169000019

14

hoc funds” fell outside of commissions based on a percentage

payment generated as a consequence of a sale.

65. It is not known how many ad hoc funds there were, nor responses

for one off payments, though there is reference to a number within

documentation provided to the SFO by Innospec. These additional

payments were variously referred to as the “Lead Defense”4 fund;

“Lim WS account”5; “compensation fund”6; “extraordinary

costs”7; “cumulative costs”8; “special funds”9; “promotion

fund”10 or “exceptional promotional work”11; “special bonus”12;

“cranes” 13 and the “Rachmat Sudibyo fund”.14

Ad Hoc Funds: The “Rachmat Sudibyo” Fund

4

DOCMAN 000169000024

5 DOCMAN 000169000025

6 DOCMAN 000169000029

7 DOCMAN 000169000032

8 DOCMAN 000169000034

9 DOCMAN 000169000036

10 DOCMAN 000169000037

11 DOCMAN 000169000038

12 DOCMAN 000169000039

13 DOCMAN 000169000040

DOCMAN 000169000041

DOCMAN 000169000042

DOCMAN 000169000043

14 DOCMAN 000169000046

15

66. This fund was conceived and largely operated during a period pre-

dating the Indictment. In the first instance between 2000 until his

departure in August 2002, a recipient of ad hoc bribes was

Rachmat Sudibyo (“Sudibyo”). The “Rachmat Sudibyo Fund” was

a corrupt vehicle to pay Sudibyo, the Indonesian Director General

of Oil and Gas at the Ministry of Energy and Mineral Resources.

He was in post until August 2002, whereupon he was appointed

Chairman of BPMigas – the newly established oil and gas

authority.

67. In an email dated 19 June 2001 from Executive A to Executive B,

Executive A discussed the Pertamina pricing and volume of sales

for 2002:15

“… if we achieve our target of $10046 we will have increased the price by

US$924 and we will pass on 10%/US$92 to PTSI … This payment will be

completely separate and in addition to the agent's fixed commission rate of 5%

and the "Rachmat Sudibyo fund" that is agreed annually in advance and paid

annually in arrears once the required tonnage has been achieved. This year, as

per last year, US$40 per MT for 4000+MT and US$50 per MT for 5000+MT.

All these arrangements … are based on total Octel Group sales i.e. both Octel

and Alcor…

To summarize:

1. Commission 5% of FOB on all sales.

2. US$40/50 per MT on all sales once targets are achieved.

3. 10% of whatever increase is achieved over the present price of US$9150.

I think that it is important that once we agree or otherwise, we at least formalize

it on paper with PTSI, on a very restricted distribution…

I hope that this reflects our discussions last week in Singapore with [Executive

C] …”

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DOCMAN 000169000048 - 50

16

68. Executive C is a more senior executive, who approved the

arrangement.

69. The Special Committee retained KPMG to examine all payments

made to PTSI. KPMG found two large payments, one in 2001

($265,000) and one on 8 January 2002 ($295,150) with invoices

stating that they were:16

“For payment all Pertamina/Migas & Lemigas Personnel (sic) travel, hotel, daily

expenses overseas during the year 2001 spent in promotion of OCTEL’s

products, as earlier agreed.”.

70. The amounts in those invoices are almost exactly the amounts that

would have been generated under the $40/$50 payment scheme

referenced in Executive A’s 19 June 2001 email to Executive B.

71. The amount of TEL sold in 2000 would have resulted in payments

of $265,055 and the amount of TEL sold in 2001 would have

resulted in payments of $294,970, both of which are close to the

actual payments of $265,000 and $295,150, respectively. The

invoices were designed to mask corrupt payments to the Rachmat

Sudibyo fund.

72. Innospec’s investigation has not found any other documents

referencing travel and entertainment for Pertamina, Migas, or

Lemigas officials for 2000 or 2001, let alone which will identify

events of the type suggested by the amounts involved in the two

invoices.

73. There are some indications of arrangements with other Pertamina

executives. In an email dated 18 December 2003, Syakir explained

that a corrupt relationship had been forged between Sebastian and

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DOCMAN 000169000052

17

the Downstream Director of Pertamina but that this relationship

would cost the agent a substantial sum to maintain:17

"Mr. Willy just came back from his meeting with the new Downstream

Director. According to Willy, this [guy] is very smart but in the first met he

already mention to Willy that Octel has big business in Pertamina, and as the

return he is not expecting Octel/Willy to give him "cents", He did say to Willy

that he will help us.

Willy has already make the appointment with him for your next visit to Jakarta."

74. Later, from 2004 onwards, Innospec targeted Suroso Atmo

Martoyo (“Suroso”), the Director of Refining at Pertamina (see

paragraphs 96 to 114 below).

Ad Hoc Funds: Chinese TEL

75. In an email dated 2 December 2003, from Syakir to Executive B,

Syakir raised concerns that TEL was apparently being offered to

Pertamina by unknown Chinese competitors:18

“I will try to get the information from Pertamina on how they are making TEL…

this situation can cause a problem to us… I knew Mr Willy has spent allot [sic]

to “buy of” [sic] some Pertamina people, not to do negative thing but just to

check the truth. We need some extra support (fund) from Octel to clear the

atmosphere in Pertamina.”

76. Innospec’s agents therefore made corrupt payments to public

officials at Pertamina which were not dependent upon or related to

specific orders for TEL being made. Corrupt payments were made

as general sweeteners “to clear the air”, through various

mechanisms including the agents’ general commission, to “buy of

[sic] some Pertamina people”, to maintain or increase market

share.

17

DOCMAN 000169000054-6

18 DOCMAN 000169000057

18

77. Furthermore, Innospec’s agents also requested further funds in

order to make corrupt payments to a rival agent – Wisnu – who

had apparently been tasked with marketing Chinese-sourced TEL

to Pertamina.

78. In an email from Syakir to Executive B dated 12 September 2003,

Syakir stated:19

“I had some information from Pak Willy that his friend Mr Wisnu is the Agent

for a company based in USA called Protec has a joint marketing with a company

called TDS-Chemical Corp. As the written evidence that I fax to you today they

can supply TEL CB/B and they have the authorization to sell and distribute TEL

and MMT (I don’t know from where… and definitely not from AOC). They are

pushing Mr Wisnu to sell their TEL to Pertamina, as you see on their document

they mention to target Pertamina. According to explanation from Mr Wisnu to

Pak Willy, the product is now available ex-stock in China. I need some

clearance and guidance from you how to stop them go to Pertamina.

We needs your help to check the accuracy of this information or they only wants

some money from Willy. If you need me/Willy to check physically in China

then Willy & I will go to China to check.”

79. In a subsequent email to Executive B dated 18 December 2003,

Syakir suggested two courses of action:20

“Mr Willy had a meeting with Mr Suroso of Pertamina. Suroso explain to Willy

that Pertamina is under pressure for the TEL and this involve politics. We know

there are 2 minister that support the Chinese activities in Pertamina.

Willy have thought for alternatives:

Alternative 1. Pertamina give 6 months order to Octel and Octel provide

“compensation fund” to Wisnu to make him calm down and not causing any

problems to Pertamina and Octel. (WHICH IS UNLIKELY TO HAPPEN,

VERY BIG MONEY TO BE SPENT)

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DOCMAN 000169000058

20 DOCMAN 000169000059–61

19

Alternative 2. Willy, Wisnu and Octel Engineer go to China, visit the TDS TEL

plant and do the assessment. In order to do this we need some funds from Octel.

Willy has communicate the idea to Wisnu. He agree to take Willy and Octel

Engineer to China and he wants to do this as soon as possible., prefer mid Jan

04.

Once Octel Engineer can make the judgement on the TDS plant, than octel can

set up the action plan/global strategy for lead business when there is an issue

about China TEL. (TDS), not only in Indonesia.

Very important to solve this problem ASAP, because it can delay the issuance of

our next PO (either for 3 or 6 months consumption). If Pertamina having

problem with their TEL Stock (stock out), they can use/buy HOMC. (the HOMC

supplier will be very happy, as well as some of Pertamina people that get the

commission from them). And we never replace it again that means it will be

difficult for us to achieve the target 3500mt (shipped) in year 2004.

Willy and I [are] aware that you are having big problem due the commission that

Octel pay to PTSI. People know the volume of the lead business in Pertamina is

very big, and they will not believe if we said to them that we only have 5 + 1%

from Octel. The trip to China is important and it is beyond our control. We think

the amount of US$250-300K is reasonable to cleat [sic] the atmosphere by

finding the truth in China once and for all.”

80. The Company’s agents were therefore asserting that the existing

general commission payments would not be sufficient to deal with

the Chinese TEL problem, and that this was another situation

where additional payment would be necessary. In fact, Innospec

refused to make any further payment in this instance. In an email

response dated 22 December 2003, Executive B stated:21

“Any other arrangement Willy has with Wisnu must be supported by Willy’s

current commission payments and resolved by their long standing business

relationship…

You and Willy should also remember that the additional 1%, on top of the 5%

was authorised by me on [Executive A’s] advice to cover all the cumulative

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DOCMAN 000169000062

20

costs that we previously covered separately, cranes etc. and that this 1% would

be the absolute maximum total commission payable.”

He nevertheless recognised that such ad hoc payments had

previously been made, and further that it was envisaged that the

general commission payments would also cover payments for

corrupt purposes, where necessary.

Ad Hoc Funds: The Suroso Fund

81. On 20 January 2003 Executive B wrote an email expressing his

concern that in the coming year or years there would be a push for

Pertamina to become fully unleaded.22 This concern was a

renewed concern, as TEL had been under threat from the time that

the Indonesian Government first announced its intention to go

unleaded in 1999. However, by 2004 it was becoming widely

acknowledged that the “lead phase out plan” would be realised and

that no orders for TEL would be processed after 1 January 2005.23

82. Nevertheless Innospec’s marketing strategy remained to push for

TEL orders corruptly both at the refinery level and within

Government.24

83. In 2003 and 2004, Innospec’s agent, Sebastian, targeted Suroso,

who became the Refinery Director of Pertamina. It is believed that

this position was second only to the President or CEO of

Pertamina. In effect Suroso had authority, at least until 2005, to

sign and agree purchase orders on behalf of Pertamina. Even after

the creation of MIGAS, individual refineries and Pertamina more

22

DOCMAN 000169000064

23 DOCMAN 000169000066

24 DOCMAN 000169000069

21

generally had certain autonomy to enter into contracts with

particular suppliers.

84. An email dated 16 August 2004 sent by Executive B to Executive

D and Executive C, sets out major changes at Pertamina. It

appears that the targeting of Suroso was well judged in that he

became the Refining Director:25

“…the entire board of Pertamina has been replaced and the new team is as

detailed below. Interestingly the old position of “Downstream Director” is no

more. This was the position recently occupied by Harry Poernomo ([Executive

C] referred to his requirements in Zug) and whose signature appears on our POs.

We assume this role will now be taken by the Refinery Director, Mr. Suroso

Atmo Martoyo, who is well known to us…

As a courtesy to have written both to the new President Director and to Suroso

congratulating them on their appointment etc…

President & CEO = Mr. Widya Purnama

Vice President = Mr. Mustiko Saleh

Finance Director = Mr. Alfred Rohimone

Upstream Director = Mr. Harry Kustoro

Refining Director = Mr. Suroso Atmo Martoyo

Marketing & Trading Director = Mr. Ari Soemarno

Human Resources Director = Mr. Supriyanto”

85. By 2004 therefore, there was considerable uncertainty surrounding

the continued permission and ability to supply TEL. In effect all

parties were working to an end of year deadline to secure orders

with no guarantee that orders thereafter would be permitted.

25

DOCMAN 000169000072

22

Consequently it was important for Innospec to secure orders by

any means.

86. On 30 November 2004 Syakir emailed Executive B, stating:26

“We have informally mention to Mr. SRS [Suroso] about the forth-coming

shipment totally 450MT and the price at US$11,000/MT. SRS seems agree and

he mention to us that he wants the fee $500/mt for him self. Willy says he needs

approval from Octel / yourself before he can say yes on no."

87. Executive B replied on the same date stating:27

"Good to speak to you earlier today … to confirm our discussion …

- For Mr. SRS, we would be willing to provide $500/t for orders received before

the end of this year at $11,000/t up to a maximum of 450t (i.e. 450 times $500

equals $225,000). If we are successful in extending the life of TEL next year, I

would expect any payment to Mr SRS to be covered by the generous offer made

by [Executive D] to Willy [Sebastian] in our meeting of 11th October. I hope …

it will help considerably in our attempts to secure a further order this year.”

88. The 450 MT purchase order referenced in the email was in fact a

446 MT purchase order that Indonesia agreed in the end of

December 2004 but eventually issued in 2005, which triggered a

$300,000 payment to PTSI in March 2005; the emails

accompanying the invoice indicate that a portion of this payment

was passed on to “Mr. SRS”, Mr. Suroso.28

89. An email dated 8 February 2005, from Syakir to Executive B,

suggested that Suroso would be the recipient of a portion of the

$300,000, as Syakir stated:29

26

DOCMAN 000169000073

27 DOCMAN 000169000075

28 DOCMAN 000169000077–80

29 DOCMAN 000169000081 – 82

23

“About money… I saw my self, Willy has opened an account for Mr SRS and

this morning he called Willy to request the balance payment.”

90. In an email dated 11 February 2005, from Executive B to Syakir,

Executive B stated:30

“Normal commission is 6% (5% for PTSI account and 1% for Lim W S account)

total value of $276,544…

We agreed that we would provide a one off payment of $300,000 for the work

done to secure the 446.4t PO which would be in addition to the normal

commission. We would like to pay this additional $300,000 in two parts, firstly

by increasing the commission with effect from 1st January to a total of 10% and

then paying the balance by a single payment for which you would issue us with

an invoice for ‘service and support activities etc’.”

91. The single balance payment was calculated at US$ 115,636.81,

which corresponds with a payment for that amount made by

Innospec to Sebastian’s account on 18 March 2005.31

92. In an email dated 8 April 2005, from Executive B to Syakir,

Executive B stated:32

“Mr Suroso visit. As previously discussed, we would expect you (PTSI) to pay

for the flights of Mr S and his wife and one family member to the UK and we

will pick up his hotel and taxi costs here. Obviously if he wants to play golf or

go to the theatre we can arrange and pay for that to. Just let us know what he

wants and we can arrange the details.”

93. Suroso and Mistiko Saleh, the Vice President of Pertamina, were

thereafter jointly entertained in the U.K. in 2005 at Innospec and

PTSI’s expense. This trip involved plans for shopping and golfing

30

DOCMAN 000169000085

31DOCMAN 000169000089 – 91

32 DOCMAN 000169000092

24

as well as a stay in the Radisson SAS Mayfair and Radisson

Edwardian Hotel Manchester.

94. The SFO asserts that the purpose of this trip was to cement good

relations and reward them for their approval of the 446 MT

purchase order which was expected to provide sufficient stock for

Pertamina until mid to end February 2005.

95. In an email dated 6 December 2004 from Executive B to Executive

C (copied to Executive D), Executive B stated:33

“Whilst MIGAS seem confident that TEL will continue to be used next year and

they have informed us that Pertamina have to seek their approval before going

completely unleaded, they may be responding irrationally. Migas are

responsible for the specs and as ULG [Unleaded Gasoline] is already available

in Indonesia I cannot understand myself (neither can Willy) their stance.

Pertamina are still telling us they will be going unleaded and will do what the

government tells them and despite the various incentives we still cannot get

Suroso or anyone else to actively support continuing use of TEL next year…

The debate is still with the Ministry of Finance and the new President’s advisers

and Willy is pushing on a daily basis.”

96. In 2005 it appeared that the outlook for TEL remained unclear and

further attempts to influence Suroso were becoming ineffective.

However Innospec maintained sales throughout 2005 and the fact

that the President of Pertamina signed a purchase order was

deemed significant by Executive B, in an email of 25 April he

wrote:34

“I had a useful series of meetings with Willy, Syakir and Suroso, the VP of

Refining on Sunday morning in London both altogether and separately. Willy

arrived with a new PO for 704t… For the first time the PO was signed by the

President Director of Pertamina, Mr Widya, which confirms to me both that the

purchase of TEL is a very sensitive issue at the moment and that Willy has

33

DOCMAN 000169000095-6

34 DOCMAN 000169000100

25

established excellent relations with the top man … As regards next year, it is far

too early to say, there is, however, an outside possibility of some continuing

business but I am not hopeful. The pressure on TEL is unrelenting and the local

NGOs are currently in the process of suing Pertamina for the continuing sales of

leaded fuels.”

97. Consequently Innospec continued to push to retain TEL arguing

variously that it would be wrong to introduce unleaded for rural

areas and/or reducing the quantity of TEL per unit measure of fuel.

Sebastian did so more at the political level, organizing and meeting

with various Ministries and Ministers during this period.

98. Nevertheless it appears that Innospec were able to maintain orders

throughout 2005 despite continued speculation over the future of

TEL. As reported by Executive B to various on 6 February 2006:35

“Sales of TEL in 2005 amounted to 4,257t worth $45.8 million, in a country that

once had the intention of being lead free in 1999.”

99. By the end of 2006 all attempts to influence the continued orders

for TEL at the Pertamina level were effectively over. As will be

detailed below in paragraphs 121 to 140, those attempts continued

at a political level.

Ad Hoc Funds: The Lead Defence Fund

100. As has already been observed, Indonesia intended to phase out the

use of TEL and leaded fuel from 1999. This political intention was

not completed until 2006.

101. Nevertheless this provides the legislative hinterland in which

Innospec found itself. This was a period during which Innospec

bribed public officials and also made funds available to prolong

35

DOCMAN 000169000101

26

sales of TEL by blocking legislative change or attempts to

effectively enforce legislative change.

102. Innospec had a dominant market position in producing TEL.

Logically and strategically it preferred to promote TEL to prolong

sales in a monopolistic market situation. Where a country went

unleaded, and there was growing pressure over time to do so,

Innospec had to compete with a range of unleaded products,

principally MMT marketed by a competitor, Ethyl. Indeed, market

conditions varied from refinery to refinery.

103. Yet it was clear that the market in unleaded additives was

increasing. Consequently towards the end of 2000, Innospec

began to explore the possibility of developing a market in unleaded

additives. The Company continued to utilise their Indonesian

agent to make corrupt payments in an attempt to ensure the

continued use of TEL in Indonesia.

104. In notes taken from a meeting in December 2000 between

Executive E, Sebastian and Sudibyo, then Director General of Oil

and Gas at the Ministry of Energy and Mineral Resources, it is

stated that:36

“Migas and Pertamina are coming under increasing pressure from the local EPA

to introduce MMT before lead phase out is complete…”

105. Innospec therefore allocated funds for, and promoted, “the defence

of lead”. Sebastian then received US$100,000 in four instalments

of US$25,000 each.37 In an email dated 16 August 2001,

36

DOCMAN 000169000104-6

37 DOCMAN 000169000107

DOCMAN 000169000108-9

27

Executive A indicated to Executive F that the funds had been

received:38

“Willy Sebastian confirms that all four “defense of lead” funds are now received

in his bank account. Many thanks for seeing this one through, it greatly assists

the total business.”

106. Recognising that decisions concerning the supply of TEL were

increasingly in the hands of persons outside or at the very least not

solely at Pertamina, Innospec used the “Lead Defence Fund” to

target and corrupt high ranking public officials within Migas and

the Indonesian Government.

107. This was a fund loosely referred to protect the interests of the lead

based additives industry, whereas in truth and reality, it was no

more than a slush fund to corrupt government figures with the

intention of blocking legislative moves to ban or enforce the ban

on TEL on environmental grounds and/or seeking higher level

buy-in to continued yearly supplies of TEL to Pertamina.

Lead Defence Fund Consolidated into General Commission

108. From 2003 Innospec agreed to an overall formula and rate to pay

their agents (see paragraph 95 above in section entitled "Chinese

TEL"). In order to prevent inflation of commission payments

demanded by the agent, in 2005 the Company agreed to pay, in

addition to the 5% general commission rate to PTSI and the 1%

commission to Sebastian, apparently in substitution of the Lead

Defence Fund he controlled, another 4% to cover and remove the

requirement for all ad hoc bribes. Innospec did so, recognising the

potential for proliferation of ad hoc requests for payments.

38

DOCMAN 000169000110

28

109. In an email dated 14 May 2004, from Syakir to Executive B,

Syakir stated:39

“Willy is trying so hard meetings with related people to Pertamina, Ministry

Environment and parleament [sic] people… and try to stop them take a decision

to go unleaded by January 2005. Therefore I think we might need some extra

money to support the Lead Defense activities.”

110. The award of the 446MT order for TEL in late 2004 has been

described above at paragraphs 101 to 106. However the

interaction with MIGAS merits specific attention as it highlights

Innospec’s efforts to obtain orders for TEL in a difficult political

environment by corrupt means.

111. In an email dated 6 December 2004, from Executive B to

Executive C, Executive B drew attention to the increasingly crucial

role of MIGAS whilst also highlighting issues with Suroso,

stating:40

“Migas seem confident that TEL will continue to be used next year and they

have informed us that Pertamina have to seek their approval before going

completely unleaded…

Pertamina are still telling us they will be going unleaded and will do what the

government tells them and despite the various incentives we still cannot get

Suroso or anyone else to actively support the continuing use of TEL next year.”

112. In an email dated 15 December 2004 to Executive B, Executive D

and Executive E, Syakir set out how he and Sebastian were

working to capitalise on the influence of Migas as well as their

links with Suroso of Pertamina:41

39

DOCMAN 000169000111

40 DOCMAN 000169000112-13

41 DOCMAN 000169000117

29

“Willy and I are driving Migas to make letter to Pertamina about the status for

Octane Booster and TEL. We have to do it nicely so that Pertamina not suspect

us behind this letter.

After meeting Ery and Iin of Migas in the morning, Willy went to see Suroso of

Pertamina in the evening. During the discussion Suroso agree:

1) … maintain Balikpapan Refinery to be supplied by Octel – PLUTOcen

2) Agree to use 45PPM of PLUTOcen G instead of previous statement

only 30ppm

3) Consider to take the full lot of TEL consignment stock at the last price

4) Suggest to Willy to resend the announcement letter about Octel

capability to market MMT by end January/Early Feb…

[Executive B], especial [sic] for this TEL PO, excl our normal com, as I

explained to you that we need extra $ to be given to our supporter in Migas and

PTM.”

113. The final paragraph, which refers to extra money required in order

to be provided to individuals at Pertamina and Migas (in particular

bribes to Ery and Lin of Migas) reveals the manner in which

Innospec conducted their business in Indonesia.

114. In an undated email, presumably sent in late December 2004, from

Sebastian to Executive B and Executive D, Sebastian attached a

copy of the latest TEL purchase order (described above at

paragraphs 101 to 106), along with a description of the manner in

which the purchase order was procured:42

“Herewith I attached the ‘Purchase order of TEL 466 ton’ and I am giving this

as my Christmas & New Year present.

I would like to tell you how we have obtained this P.O. At first we nearly lose

all hope for the P.O. Nevertheless, we still work dedicatedly round the clock.

42

DOCMAN 000169000118-21

30

We tried to ask Mr Ferry’s assistance (He is involved in the

shipping/procurement) to involve the high-ranked officials to arrange the

continuation of TEL usage in 2005. He told us that he could not do it when we

offered them the fund that you have promised us. He thought that my

commission is about 15 to 20 percent.

In the beginning of December, Pertamina and other related departments has

decided to stop using the TEL, even the need of TEL usage for Cilacap area

(from Dec 21st to 31st) will be replaced by MMT and HOMC. At that time, they

do not regard us seriously and required us to spend a lot of time, effort and

expenditure. Finally, they agreed to let us provide 100 tons of TEL, even this is

not guaranteed.

In mid December, I was assisted by Migas (Mr Iin and Mr Ery) to create a new

strategy which is to forward a letter directly to the Director of Pertmina

informing two important things. Firstly, TEL has to be continually used and

secondly, Pertamina requires a formal recommendation from Migas and other

related departments (e.g. ministry of finance and environment) for the usage of

Octane Booster…

To get the director’s attention to this matter, I was greatly helped by my good

friend who has a good relationship with the director. Eventually I could

communicate directly and continuously to the director of Pertamina even in the

middle of the night and when I was on my way to Los Angeles. As the result,

Mr Suroso (Director of Refinery) is starting to support us and we are able to be

in touch daily.”

115. The above information points towards a double-pronged strategy in

which Innospec first used its supporters in Migas to put pressure

on Pertamina, before capitalising on this through the use of Suroso,

as described above at paragraphs 101 to 106. The result of this

was a purchase order for TEL which had looked extremely

unlikely as late as December 2004, described above.

116. The payment to PTSI arising out of the purchase order which

eventually amounted to $300,000 is described in paragraphs 101 to

106 above.

117. The evidence also indicates that Innospec, and its agents, remained

committed to a policy of focusing its attention on Suroso of

31

Pertamina, MIGAS, and with various Ministries with influence

over the unleaded policy.

118. In an email dated 3 April 2006, from Syakir to Executive B, Syakir

stated:43

“Willy and I are still doing our silent action in Pertamina and Migas. We have

made Suroso to review Pertamina TEL requirement up to end of this year.”

119. During this period PTSI attempted to acquire more funds from

Innospec. In an email dated 25 April 2006, from Syakir to

Executive B, Syakir stated:44

“As you and [Executive C] agree for the commission to PTSI, we need the

additional increase to be realocated [sic] to PTSI for lead defense.”

120. Executive B replied on 26 April 2006:45

“Please do not assume that any more commission is available and we are still

proceeding on the current basis, that is 10% (5%, + 4%, + 1%)…

Whilst we understand the difficulties and the peculiarities of the Indonesian

market as a publicly quoted and audited US Corporation even the current rate of

10% causes us some difficulty…”

121. The below documents illustrate that, as 2006 progressed, the

influence of MIGAS seemingly began to wane, as did the influence

of Innospec over Suroso. The increased focus was on individuals at

a ministerial level.

122. The loss of influence over Suroso was apparently a consequence of

his links with the importers of an imported finished fuel, HOBC.46

43

DOCMAN 000169000122

44 DOCMAN 000169000125

45 DOCMAN 000169000127

46 DOCMAN 000169000129

32

123. In an email dated 2 June 2006, from Syakir to Executive B, Syakir

stated:47

“Willy has tried any possible angle to influence Suroso but seems still difficult.”

124. In a memo dated 3 July 2006, from Executive B to Executive D,

Executive B stated:48

“Suroso is definitely the key man and we must try and put pressure on him to

change his mind and continue with TEL. This is very difficult and we are

approaching this from a number of different angles by using our friends and

contacts in Migas and various Ministries (Industry and Finance)…

Migas is not as influential a body as it was some time ago and no longer has

direct control over Pertamina.”

125. In spite of emails between PTSI and Innospec suggesting that

Sebastian was attempting to influence ministers of the Indonesian

Government49 by September 2006 the use of leaded fuel in

Indonesia had been discontinued.

47

DOCMAN 000169000130

48 DOCMAN 000169000132

49 DOCMAN 000169000134

DOCMAN 000169000135

DOCMAN 000169000136

33

APPENDIX 1

The following matters are intended to assist the Court.

They are a non-exhaustive list of the factors which the Director of the SFO takes

into account when determining to investigate and prosecute allegations of

overseas corruption by United Kingdom based companies and individuals and in

particular Innospec.

1. The Director of the SFO has made clear his position clear, in the public

domain and to the U.K. business community that companies can and

should refer themselves to the SFO where it appears they have previously

engaged in corrupt practices overseas.

2. The SFO is committed to the interests of the victims of overseas corporate

corruption carried out by U.K. based companies. Overseas corruption is

not a "victimless crime". As the present case clearly demonstrates, the

victims are all or any of the proper interests of the governments of the

countries where such practices are carried out, the integrity of their civil

services and public officials, and - more generally - the peoples of those

countries, particularly the poorer and poorest sectors of those populations

whose public revenues are being potentially prejudiced.

3. The United Kingdom has ratified the 1999 OECD Convention prohibiting

overseas corrupt practices. As a result, it enacted sections 108 and 109 of

the Anti-terrorism, Crime and Security Act 2001.

4. Furthermore, at the G8 summit at Gleneagles in July 2005, the United

Kingdom re-affirmed its commitment to the eradication of overseas

corruption, as did the world's other leading industrialised nations.

5. By virtue of the multilateral approach to the problem, it can be seen that

United Kingdom companies are not disadvantaged in their endeavours to

compete for overseas business.

6. Equally, it is the view both of the United Kingdom government and the

Director of the SFO that corrupt practices overseas distort proper

34

competition and are wasteful and damaging to the economies of, in

particular, developing nations.

7. The Director of the SFO will also consider where the public interest lies in

deciding what approach to take to dealing with a company. There will be

cases where the public interest is very firmly in favour of prosecution.

There will be others where alternatives to prosecution (which still impose

significant penalties on the company) will be appropriate. The Director

has also made it clear that any resolution will ultimately be subject to

public scrutiny.

8. The Director of the SFO has also explained publicly that any resolution

relating to any company is entirely without prejudice to any investigation

and prosecution of those individuals who took part in unlawful activity.

There may well be circumstances in which the public interest will favour

investigation and prosecution of individuals, notwithstanding that the

company is dealt with by way of prosecution at the start of an

investigation or by way of some other disposal such as civil recovery,

always recognizing that a corporate personality can only ever be punished

by a financial penalty (in whatever form).